by Calculated Risk on 10/06/2012 08:01:00 AM

This was a very busy week for US economic data, capped off with an encouraging employment report. Yesterday I wrote Employment: Somewhat Better (also more graphs) and I pointed out a number of positives (and a few negatives) in the September report.

Most of the other economic data was somewhat positive too (even without housing!). Both ISM surveys (manufacturing and service) were weak, but above expectations. And auto sales were at the highest level since February 2008.

Also the impact of QE3 was evident in the MBA mortgage refinance index that increased to the highest level since 2009.

Here is a summary of last week in graphs:

• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate

Even though payroll growth was weak, this was a much stronger report than the last few months, especially considering the upward revisions to the July and August reports. And that doesn't include the annual benchmark revision (that will also show more jobs).

This was slightly above expectations of 113,000 payroll jobs added.

The second graph shows the employment population ratio, the participation rate, and the unemployment rate. The unemployment rate decreased to 7.8% (red line). This is from the household report, and that report showed strong job growth.

The Labor Force Participation Rate increased slightly to 63.6% in September (blue line. This is the percentage of the working age population in the labor force.

The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although most of the recent decline is due to demographics.

The Employment-Population ratio increased to 58.7% in September (black line). This is still very low.

The third graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

The fourth graph shows the job losses from the start of the employment recession, in percentage terms compared to other financial crisis (including the Great Depression).

This is an update to a graph by economist Josh Lehner (ht Josh for the data):

[I]n the context of the Big 5 financial crises, the current U.S. cycle suddenly does not look quite as dire. Notice how the x-axis, how long it takes to return to peak levels of employment, is measured in years(!) not months like the first graph.
...
[T]he U.S. labor market has performed better than 4 of the previous Big 5 crises, as identified by Reinhart and Rogoff, in terms of job loss and the return to peak time line.

Even though payroll growth was weak and close to expectations (expected was 113,000), overall this was a much stronger report than for recent months.

• ISM Manufacturing index increases in September to 51.5

Click on graph for larger image.

The ISM index indicated expansion after three consecutive months of contraction. PMI was at 51.5% in September, up from 49.6% in August. The employment index was at 54.7%, up from 51.6%, and the new orders index was at 52.3%, up from 47.1%.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 49.7% and suggests manufacturing expanded in September. The internals were positive too with new orders and employment increasing.

• ISM Non-Manufacturing Index increases in September

The September ISM Non-manufacturing index was at 55.1%, up from 53.7% in August. The employment index decreased in September to 51.1%, down from 53.8% in August. Note: Above 50 indicates expansion, below 50 contraction.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was above the consensus forecast of 53.5% and indicates faster expansion in September than in August. The internals were mixed with the employment index down, but new orders up.

• U.S. Light Vehicle Sales at 14.94 million annual rate in September, Highest since Feb 2008

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.94 million SAAR in September. That is up 14% from September 2011, and up 3% from the sales rate last month.

This was above the consensus forecast of 14.5 million SAAR (seasonally adjusted annual rate).

It looks like auto sales were up about 2.7% in Q3 compared to Q2 (over 10% annualized increase), and auto sales will probably make another small positive contribution to GDP. However it appears there is a shift to smaller cars, so total revenue might not increase much.

• Office Vacancy Rate declines slightly in Q3 to 17.1%

From Reuters: U.S. office market barely gains in third quarter

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis is reporting the vacancy rate declined in Q3 to 17.1%, down slightly from 17.2% in Q2, and down from 17.4% in Q3 2011. The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010.

This is a sluggish recovery for office space.

• Reis: Apartment Vacancy Rate declined slightly to 4.6% in Q3, More Supply coming in 2013

Reis reported that the apartment vacancy rate (82 markets) fell slightly to 4.6% in Q3, down from 4.7% in Q1 2012. The vacancy rate was at 5.6% in Q3 2011 and peaked at 8.0% at the end of 2009.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999).

Reis is just for large cities. It appears that the declines in vacancy rates is slowing, and rent increases might slow too. Also, as Reis economist Calanog notes, there will be a significant increase in new supply in 2013 (and in 2014).

• Reis: Regional Mall Vacancy Rate declines in Q3, Strip Mall vacancy rate unchanged

Reis reported that the vacancy rate for regional malls declined to 8.7% in Q3 from 8.9% in Q2. This is down from a cycle peak of 9.4% in Q3 of last year.

For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged at 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.0% in Q2 of last year.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The yellow line shows mall investment as a percent of GDP. This has been increasing a little recently because this includes renovations and improvements. New mall investment has essentially stopped.

• Weekly Initial Unemployment Claims increase to 367,000

The DOL reports:

In the week ending September 29, the advance figure for seasonally adjusted initial claims was 367,000, an increase of 4,000 from the previous week's revised figure of 363,000. The 4-week moving average was 375,000, unchanged from the previous week's revised average.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims was unchanged at 375,000.

This was lower than the consensus forecast of 370,000. Mostly moving sideways this year ...

All current Employment Graphs
• Construction Spending decreased in August

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 60% below the peak in early 2006, and up 23% from the post-bubble low. Non-residential spending is 30% below the peak in January 2008, and up about 27% from the recent low.

Public construction spending is now 16% below the peak in March 2009 and near the post-bubble low.

Note: Spending in August would have been up compared to July without the upward revision to July spending. With both June and July revised up, this report was decent. Residential construction spending was up in August, and the solid year-over-year increase in private residential investment is a positive for the economy (the increase in 2010 was related to the tax credit).
All Housing Investment and Construction Graphs
• Other Economic Stories ...
• LPS: Mortgage prepayment rates highest since 2005
• MBA: Mortgage Refinance Applications increases sharply, Highest Since 2009
• U.S. Births Decline for the fourth consecutive year in 2011
• Trulia: Asking House Prices increased in September
• FOMC Minutes: "Most participants agreed numerical thresholds could be useful"
• ADP: Private Employment increased 162,000 in September

by Calculated Risk on 10/05/2012 05:56:00 PM

Earlier on employment:
• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate
• Employment: Somewhat Better (also more graphs)
• All Employment Graphs

Last night I mentioned the soaring gasoline prices in California, here is an update from the LA Times: California facing new record high for gasoline prices

The average price for a gallon of regular gasoline in California jumped a whopping 17.1 cents overnight. That makes it almost certain that the state's motorists will see a new all-time record high for gas sometime this weekend.

Friday's average price for a gallon of unleaded regular in California is $4.486 a gallon, which is by far the highest in the nation.
...
Analysts have blamed the sudden increase on a recent spate of refinery problems.

The following graph shows the recent decrease in gasoline prices. Gasoline prices have been on a roller coaster all year.

Add Los Angeles or San Francisco, and you'll see the graph go straight up!

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 10/05/2012 02:35:00 PM

Once again rail traffic was "mixed". However all of the decline in rail carloads was due to fewer coal shipments.

From the Association of American Railroads (AAR): AAR Reports Mixed Weekly Rail Traffic for September

The Association of American Railroads (AAR) today reported U.S. rail carloads originated in September 2012 totaled 1,152,174 carloads, down 3.7 percent (43,746 carloads) compared with September 2011. Intermodal traffic in September totaled 973,715 containers and trailers, up 2.5 percent (24,126 units) compared with September 2011. September 2012 represents the 34th straight month of intermodal gains.
...
“September rail traffic is again a mix of good news and bad news,” said AAR Senior Vice President John T. Gray. “The primary bad news is that coal carloads continue to struggle, due to the various economic and regulatory constraints faced by coal-fired power plants. The good news is that many other key rail traffic categories are offsetting coal’s decline, including petroleum and petroleum products, motor vehicles, crushed stone and sand, and lumber. Intermodal volume has risen for 34 straight months and could very well set a new record this year.”

Click on graph for larger image.

This graph shows U.S. average weekly rail carloads (NSA).

On a non-seasonally adjusted basis, total U.S. rail carload traffic fell 3.7% (43,746 carloads) in September 2012 from September 2011 ... As has been the case for many months, coal was largely to blame for the decline in total carloads. Coal carloads were down 12.1% (65,867 carloads) in September 2012 from September 2011, more than accounting for the total carload decline for the month. Excluding coal, U.S. carloads were up 3.4% (22,121 carloads) in September 2012

Carloads of crushed stone, sand, and gravel were up 9,044 carloads, or 12.3%, in September 2012. Much, if not most, of the increase in this category is probably attributable to higher frac sand movements.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Graphs reprinted with permission.

Intermodal traffic is near peak levels.

U.S. rail intermodal traffic rose in September for the 34th straight month too, rising 2.5% (24,126 containers and trailers) over September 2011. Intermodal volume averaged 243,429 units per week in September 2012, the third-highest monthly average so far this year. September is usually the second- or third-highest volume intermodal month of the year, but it will probably be no better than fourth in 2012, since October is usually the top intermodal month. In the last week of September 2012, volume was 257,225 containers and trailers, the best intermodal week of the year and the third highest of all time.

The top months for intermodal are usually in the fall, and it looks like intermodal traffic will be at or near record levels this year.

This is more evidence of sluggish growth.

Earlier on employment:
• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate
• Employment: Somewhat Better (also more graphs)
• All Employment Graphs

by Calculated Risk on 10/05/2012 11:15:00 AM

The payroll job growth was still weak, but there was some encouraging news in the employment report. This is just one report, but it was great to see the employment-population ratio increase for the key working age demographic of 25 to 54 years old (first graph below).

Also the unemployment rate is now at the lowest level since January 2009 (when the economy was collapsing), and it was encouraging to see the number of long term unemployed drop below 5 million for the first time since early 2009.

In a recent post, I highlighted Two Reasons to expect Economic Growth to Increase. The first reason was that we are nearing the end of the state and local government layoffs. This report suggests we may be near the bottom (last graph).

The second reason was a pickup in residential investment. This report showed an increase of just 5 thousand construction jobs, however I think the BLS is under counting construction jobs at the turn. The preliminary benchmark revision showed an upward revision of 386,000 payroll jobs as of March (this is an annual revision bench marked to state tax records). A fairly large portion of the upward revision was for construction workers (85,000 more jobs added), and I suspect that the BLS statistical model that estimates new company formation (the Birth/Death model) is currently underestimating the formation of small construction companies.

All that said, the economy has only added 1.3 million payroll jobs over the first nine months of the year. At this pace, the economy would only add around 1.8 million private sector jobs in 2012; less than the 2.1 million added in 2011.

Also U-6, an alternate measure of labor underutilization that includes part time workers and marginally attached workers, was unchanged at 14.7%. A key reason this didn't decline in September was because of an increase in part time workers (see 3rd graph below).

More positive news: The change in payroll employment for July was revised up from +141,000 to +181,000, and the August was revised up from +96,000 to +142,000.

The average workweek and average hourly earnings both increased. "The average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.5 hours in September. ... In September, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $23.58. Over the past 12 months, average hourly earnings have risen by 1.8 percent." This is sluggish earnings growth, but it appears to be picking up.

Even though payroll growth was sluggish, this employment report was an improvement over recent reports, especially with the upward revisions, the increase in hourly earnings, and the increase in the 25 to 54 employment-population ratio. Here are a few more graphs...

Employment-Population Ratio, 25 to 54 years old

Click on graph for larger image.

Since the participation rate has declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle.

This ratio should probably move back to or above 80% as the economy recovers. The ratio increased in September to 76.0%, the highest level since early 2009 - but there is still a long ways to go.

Percent Job Losses During Recessions


This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses.

In the earlier post, the graph showed the job losses aligned at the start of the employment recession.


Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.0 million in August to 8.6 million in September. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of part time workers increased in September to 8.6 millon from 8.03 million in August.

These workers are included in the alternate measure of labor underutilization (U-6) that was unchanged in September at 14.7%.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 4.84 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 5.03 million in August. This is generally trending down and is at the lowest level since early 2009. Long term unemployment remains one of the key labor problems in the US.

State and Local Government

This graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011.

Note: The dashed line shows an estimate including the benchmark revision.

It appears most of the state and local government layoffs are over.

Overall this was a somewhat more encouraging report.
All Employment Graphs

by Calculated Risk on 10/05/2012 08:30:00 AM

From the BLS:

The unemployment rate decreased to 7.8 percent in September, and total nonfarm payroll employment rose by 114,000, the U.S. Bureau of Labor Statistics reported today.
...
[Household survey] Total employment rose by 873,000 in September, following 3 months of little change. The employment-population ratio increased by 0.4 percentage point to 58.7 percent, after edging down in the prior 2 months. The overall trend in the employment-population ratio for this year has been flat. The civilian labor force rose by 418,000 to 155.1 million in September, while the labor force participation rate was little changed at 63.6 percent.
...
The change in total nonfarm payroll employment for July was revised from +141,000 to +181,000, and the change for August was revised from +96,000 to +142,000.

Click on graph for larger image.

Even though payroll growth was weak, this was a much stronger report than the last few months, especially considering the upward revisions to the July and August reports. And that doesn't include the annual benchmark revision (that will also show more jobs).

This was slightly above expectations of 113,000 payroll jobs added.

The second graph shows the employment population ratio, the participation rate, and the unemployment rate. The unemployment rate decreased to 7.8% (red line). This is from the household report, and that report showed strong job growth.

The Labor Force Participation Rate increased slightly to 63.6% in September (blue line. This is the percentage of the working age population in the labor force.

The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although most of the recent decline is due to demographics.

The Employment-Population ratio increased to 58.7% in September (black line). This is still very low.

The third graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

The fourth graph shows the job losses from the start of the employment recession, in percentage terms compared to other financial crisis (including the Great Depression).

This is an update to a graph by economist Josh Lehner (ht Josh for the data):

[I]n the context of the Big 5 financial crises, the current U.S. cycle suddenly does not look quite as dire. Notice how the x-axis, how long it takes to return to peak levels of employment, is measured in years(!) not months like the first graph.
...
[T]he U.S. labor market has performed better than 4 of the previous Big 5 crises, as identified by Reinhart and Rogoff, in terms of job loss and the return to peak time line.

Even though payroll growth was weak and close to expectations (expected was 113,000), overall this was a much stronger report than for recent months. I'll have much more later ...

by Calculated Risk on 10/04/2012 09:15:00 PM

Gasoline prices in California are up 21 cents from one week ago. From the O.C. Register: O.C. gas prices jump 9 cents overnight

A series of problems at some of the state's most important refineries has tightened supplies and driven up prices, the analysts said. In Orange County, that contributed to an overnight jump of 9 cents in the cost of an average gallon of regular unleaded, to $4.33 on Thursday.

That was 21 cents more than it cost one week earlier, according to the AAA auto club.
...
The trouble began in August, when fire broke out at one of the biggest refineries in the state, a Chevron facility in the bay area; its production still has not fully recovered. Then, earlier this week, a power outage slowed production at an Exxon Mobil refinery in Torrance that, though smaller, produces 10 percent of the state's gasoline.

A pipeline that carries oil through the Central Valley also shut down when contaminants were found in it, further crimping gasoline inventories, experts said.

We could see $5 per gallon. Ouch!

On Friday:
• At 8:30 AM ET, the BLS will release the Employment Report for September. The consensus is for an increase of 113,000 non-farm payroll jobs in September; there were 96,000 jobs added in August. The consensus is for the unemployment rate to be unchanged at 8.1% in September.

• At 3:00 PM, Consumer Credit for August will be released by the Federal Reserve. The consensus is for credit to increase $7.8 billion in August.

Two more questions for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/04/2012 03:47:00 PM

On Friday, at 8:30 AM ET, the BLS will release the employment report for September. The consensus is for an increase of 113,000 non-farm payroll jobs in September, slightly more than the 96,000 payroll jobs added in August. The consensus is for the unemployment rate to be unchanged at 8.1%.

Note: Last week analysts at Nomura pointed a possible one time issue: "We expect the Chicago teacher strike to reduce local government payrolls by roughly 25k in September ...". If that is correct, those jobs will be added back in October.

Also, there is a strong possibility that the seasonal factors are still a little distorted by the deep recession and financial crisis - this is the third year in a row we've some late spring weakness. In 2010, payrolls picked up in October following a weak period (looking at the data ex-Census), in 2011, payrolls picked up in September. If there is a seasonal distortion, the next few months will probably see some increase too.

Here is a summary of recent data:

• The ADP employment report showed an increase of 162,000 private sector payroll jobs in September. Over the last four months, the ADP report has averaged 170,000 private sector payroll jobs added per month compared to only 109,000 private sector jobs added per month in the BLS report over the same period (September not released). This would seem to suggest that the consensus for the increase in total payroll employment is too low. However the ADP report hasn't been very useful in predicting the BLS report for any one month.

• The ISM manufacturing employment index increased in September to 54.7%, up from 51.6% in August. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing increased about 6,000 in September.

The ISM non-manufacturing (service) employment index decreased in September to 51.1%, down from 53.8% in August. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for services, suggests that private sector BLS reported payroll jobs for services increased about 94,000 in September.

Added together, the ISM reports suggests about 100,000 jobs added in September.

• Initial weekly unemployment claims averaged about 373,000 in September, up slightly from the August average - but below the 382,000 average for April, May and June. This was about the same level as in the January, February and March period when the BLS reported an average of 226,000 payroll jobs added per month.

For the BLS reference week (includes the 12th of the month), initial claims were at 385,000; up from 374,000 during the reference week in August.

• The final September Reuters / University of Michigan consumer sentiment index increased to 79.2, up from the August reading of 74.3. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This might suggest some increase in employment, but the level still suggests a weak labor market.

• The small business index from Intuit showed 40,000 payroll jobs added, down from 50,000 in August.

• And on the unemployment rate from Gallup: U.S. Unadjusted Unemployment Rate at 7.9% in September

U.S. unemployment, as measured by Gallup without seasonal adjustment, was 7.9% for the month of September, unchanged from 7.9% measured in mid-September but down slightly from 8.1% for the month of August. Gallup's seasonally adjusted September unemployment rate was 8.1%, unchanged from August.

Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution (Gallup provides some caveats). Last September, the BLS reported the unemployment rate at 9.0%, and Gallup's seasonally adjusted rate was 8.9%. Note: So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate.

• Conclusion: The ISM manufacturing and service reports suggest a gain of around 100,000 payroll jobs, and the ADP report (private only) was at 162,000. The ISM is below the consensus, and the ADP is above. Initial weekly unemployment claims were near the low for the year during August, but the reference week was higher.

Another negative is the weak small business numbers from Intuit. Also the Chicago teacher strike probably reduced government employment.

As I mentioned above, there is some chance the seasonal factors have been distorted by the severe recession, and that might mean a higher than expected payroll number.

Merrill Lynch analysts are taking the under:

We expect yet another soft payroll report with job growth of only 90,000 in September and an increase in the unemployment rate to 8.2%.

Tim Duy is taking the over, see: Fed Watch: Data Update

I tend to think that attempting to forecast the monthly change in payrolls is a fool's game. Simply too much month-to-month noise. With that caveat in mind, my quick and dirty estimate (and quite wrong last month) for tomorrow is 139k; the consensus forecast is 113k.

I could make an argument for either the over or the under, but I think I'll take the under this month (under 113,000 payroll jobs added).

by Calculated Risk on 10/04/2012 02:10:00 PM

From the Fed: Minutes of the Federal Open Market Committee, September 12-13, 2012 . Excerpt:

Participants again exchanged views on the likely benefits and costs of a new large-scale asset purchase program. Many participants anticipated that such a program would provide support to the economic recovery by putting downward pressure on longer-term interest rates and promoting more accommodative financial conditions. A number of participants also indicated that it could lift consumer and business confidence by emphasizing the Committee's commitment to continued progress toward its dual mandate. In addition, it was noted that additional purchases could reinforce the Committee's forward guidance regarding the federal funds rate. Participants discussed the effectiveness of purchases of Treasury securities relative to purchases of agency MBS in easing financial conditions. Some participants suggested that, all else being equal, MBS purchases could be preferable because they would more directly support the housing sector, which remains weak but has shown some signs of improvement of late. One participant, however, objected that purchases of MBS, when compared to purchases of longer-term Treasury securities, would likely result in higher interest rates for many borrowers in other sectors. A number of participants highlighted the uncertainty about the overall effects of additional purchases on financial markets and the real economy. Some participants thought past purchases were useful because they were conducted during periods of market stress or heightened deflation risk and were less confident of the efficacy of additional purchases under present circumstances. A few expressed skepticism that additional policy accommodation could help spur an economy that they saw as held back by uncertainties and a range of structural issues. In discussing the costs and risks that such a program might entail, several participants reiterated their concern that additional purchases might complicate the Committee's efforts to withdraw monetary policy accommodation when it eventually became appropriate to do so, raising the risk of undesirably high inflation in the future and potentially unmooring inflation expectations. One participant noted that an extended period of accommodation resulting from additional asset purchases could lead to excessive risk-taking on the part of some investors and so undermine financial stability over time. The possible adverse effects of large purchases on market functioning were also noted. However, most participants thought these risks could be managed since the Committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs.

Participants also discussed issues related to the provision of forward guidance regarding the future path of the federal funds rate. It was noted that clear communication and credibility allow the central bank to help shape the public's expectations about policy, which is crucial to managing monetary policy when the federal funds rate is at its effective lower bound. A number of participants questioned the effectiveness of continuing to use a calendar date to provide forward guidance, noting that a change in the calendar date might be interpreted pessimistically as a downgrade of the Committee's economic outlook rather than as conveying the Committee's determination to support the economic recovery. If the public interpreted the statement pessimistically, consumer and business confidence could fall rather than rise. Many participants indicated a preference for replacing the calendar date with language describing the economic factors that the Committee would consider in deciding to raise its target for the federal funds rate. Participants discussed the benefits of such an approach, including the potential for enhanced effectiveness of policy through greater clarity regarding the Committee's future behavior. That approach could also bolster the stimulus provided by the System's holdings of longer-term securities. It was noted that forward guidance along these lines would allow market expectations regarding the federal funds rate to adjust automatically in response to incoming data on the economy. Many participants thought that more-effective forward guidance could be provided by specifying numerical thresholds for labor market and inflation indicators that would be consistent with maintaining the federal funds rate at exceptionally low levels. However, reaching agreement on specific thresholds could be challenging given the diversity of participants' views, and some were reluctant to specify explicit numerical thresholds out of concern that such thresholds would necessarily be too simple to fully capture the complexities of the economy and the policy process or could be incorrectly interpreted as triggers prompting an automatic policy response. In addition, numerical thresholds could be confused with the Committee's longer-term objectives, and so undermine the Committee's credibility. At the conclusion of the discussion, most participants agreed that the use of numerical thresholds could be useful to provide more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges.

This suggests that the Fed will likely set QE3 targets for unemployment and inflation. As an example, Chicago Fed President Charles Evans has suggested that QE3 purchases should continue until the unemployment rate is below 7% or inflation at 3%.

by Calculated Risk on 10/04/2012 11:42:00 AM

Reis reported that the vacancy rate for regional malls declined to 8.7% in Q3 from 8.9% in Q2. This is down from a cycle peak of 9.4% in Q3 of last year.

For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged at 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.0% in Q2 of last year.

Comments from Reis Senior Economist Ryan Severino:

[Strip mall] Vacancy was unchanged during the third quarter. This is slightly worse than the second quarter when the vacancy rate declined by 10 basis points. On a year-over-year basis, the vacancy rate declined by a scant 20 bps. While demand slightly outpaced new construction during the quarter, it was insufficient to cause the vacancy rate to decline. With only 569,000 square feet delivered, any semblance of demand would have caused the vacancy rate to decline. The fact that it did not speaks volumes about the continued struggles that the retail sector must countenance.

Asking and effective rents both grew by 0.1% during the quarter. This represents a slowdown from the already paltry 0.2% growth in asking and effective rents during the second quarter. It was the fourth consecutive quarter that asking and effective rents have increased. Although positive, rent growth remains at dazzlingly low levels.
...
[New construction] With the ongoing weakness in the sector, new construction declined near record‐levels during the quarter. 569,000 square feet were delivered during the third quarter, versus 805,000 square feet during the second quarter. However, this is a slowdown compared to the 2.008 million square feet of retail space that were delivered during the third quarter of 2011. In fact, 569,000 square feet is the second‐lowest figure on record since Reis began tracking quarterly data in 1999, bested only by the minuscule 261,000 square feet that were delivered in the first quarter of 2011. With demand for space at depressed levels, there is little to no impetus to develop new projects.
...
[Regional] Malls continue to outperform their neighborhood and community shopping center brethren. The vacancy rate declined by another 20 basis points during the quarter. This is the fourth consecutive quarter with a vacancy decline. Asking rent growth was in line with last quarter, growing by another 0.3%. This was the sixth consecutive quarter of asking rent increases. Overall the improvement in the mall subsector is not accelerating, but it is not faltering either. However, underlying these trends there remains a strong diverge in the performance between dominant Class A malls, which typically boast luxury retailers and cater to affluent consumers, and inferior malls which sport more mainstream retailers and cater to more typical consumers.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

The yellow line shows mall investment as a percent of GDP. This has been increasing a little recently because this includes renovations and improvements. New mall investment has essentially stopped.

The good news is, as Severino noted, new square footage is near a record low, and with very little new supply, the vacancy rate will probably continue to decline slowly.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 10/04/2012 10:00:00 AM

Press Release: Asking Prices On Track To Rise 4 Percent Nationally in 2012

Trulia today released the latest findings from the Trulia Price Monitor and the Trulia Rent Monitor ... Based on the for-sale homes and rentals listed on Trulia, these monitors take into account changes in the mix of listed homes and reflect trends in prices and rents for similar homes in similar neighborhoods through September 30, 2012.
...
In September, asking prices on for-sale homes–which lead sales prices by approximately two or more months – increased 2.5 percent year over year (Y-o-Y). Excluding foreclosures, Y-o-Y asking prices rose 3.5 percent. Meanwhile, asking prices rose nationally 1.6 percent quarter over quarter (Q-o-Q), seasonally adjusted, and 0.5 percent month over month (M-o-M), seasonally adjusted.
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Nationally, rent gains continue to outpace home price increases in September, rising by 4.8 percent Y-o-Y. Among the largest 25 rental markets, Y-o-Y rents rose the most in Houston and Miami, where they climbed more than 10 percent
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”As asking prices continue to climb, 2012 will almost surely be the first year of rising home prices since 2006,” said Jed Kolko, Trulia’s Chief Economist. “Right now, prices are recovering across the country, with few local markets left behind. While some of these increases are a bounceback from the huge price declines during the recession, price gains are strongest where job growth has boosted housing demand and where declining inventories lead to tighter supply.”

These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a SA basis.

More from Jed Kolko, Trulia Chief Economist: Asking Prices Rise Year over Year in 6 out of 7 Election Swing States